Relationship Between Capitalism and Socialism

Capitalism and socialism have an entwined relationship. There are no societies that have purely socialist policies or purely capitalistic policies. In order to keep society in motion, both policies types are used by modern governments. The ideas and values placed behind capitalism and socialism have little to do with the real world economics. Capitalism and socialism are responses that governments make to the outside world. Though it is not to say ideology is not important because pervasive ideas are responsible for the incubation and implementation of societal revolutions.

Socialist policies provide employment and welfare because otherwise civil unrest follows. If the private sector is unable to produce enough jobs for the populace, then the state should step in to provide them. When people are not working they have less money to buy the products and services other entities are producing.

The economic case of Marienthal is an example of how unemployment and lack of government intervention can devastate the populace. Marienthal was the industrial district surrounding Vienna, Austria; the study observed the effects of unemployment on the population, which included a lack of identity, time awareness, and malnutrition. The reason lies in the stock market crash of 1929 and lack of a solid government spending of WW1 that preceded the event. The Austrian government also cut spending in an effort to save money. However, this made the situation worse because government spending helps improve the economic libidio of a society, sparking trade and the exchangement of goods. The state of Austria did not improve until socialist policies of Nazi Germany took control of Austria. The case of Marienthal shows that government use of socialist policies can move a society out of an economic depression. [1]

Part of the reason why socialist policies are important is because capitalist corporations are not interested in or motivated by social welfare. They are interested in providing services that are profitable. Socialism picks up where capitalism leaves off in that regard. A society needs protection, roads, and schools, yet funding them is tricky under a private corporation. Private corporations are also subject to becoming monopolies. Take for example highways. In theory a private corporation could produce and maintain a system of highways. The society would then pay that private corporation to use the roads. This is not a reality because a private company would need a massive amount of capital to invest, and it would have had to beat the government to the job. A road system would likely be prone to monopolization as well. For these reasons highways and roads are not run by a for-profit corporation, but are instead treated as public welfare projects.

No matter what a society may proclaim itself, be it a socialist, a capitalist, a democratic, or a republic state, they all function under the same world economy and they all take similar actions. This is a point that Andre Gunder Frank noted in an article entitled, “What Went Wrong in the ‘Socialist’ East?”. Frank is a realist, focusing on the concrete reality of economic factors rather than attributing causes to a set of beliefs and philosophies.​The social philosophies of Karl Marx and Friedrich Engels was a response to the exploitation that the average Englishman was subject to by the private sector. Vladimir Lenin was one of the first to actualise Marxist ideas; he found relation in Marx’s texts because it spoke to the similar problem of class struggle that Russia faced. The class struggle was between the peasants and the lords because Feudalism was present in Russia. These lords were taking all the surplus of grain and selling it to places like England. Without the grain from Russia, the rise of an industrial working class in England may have been much harder; many of the working class Englishmen would have needed to farm instead of work in factories. Communism promised to bring Russia prosperity, which was measured in providing electricity and factories. When the Soviet Union gained power, they reorganised the labor in such that factories could be made. Yet this was at the cost of a severe lack of food. Unlike England, the Soviet Union could not buy grain easily from a neighboring country.

So communism was running on this deficit for along time, and the whole reason it was adopted was because Russia was not doing industrialising as well compared to other countries. The Soviet Union tried to produce everything within its borders, but eventually switched to borrowing from the West in the 70s. Other East Bloc countries were having the same problems and began to borrow money from the West. It was all in an effort to make a higher standard of living for the people, but the countries could not monetarily support a higher standard of living. The West stopped lending money to the East Bloc countries around the early 80s. They could not support their minimum payments. As a result the East Bloc countries had to reduce pay for workers which resulted in the formation of the anti-communistic movements such as the Solidarity movement which contributed significantly to the fall of communism.

The reason Communism fell swiftly and all at once is because the whole economy is a world economy. The debt which many of the East Bloc countries had and even capitalistic societies had were all responses to the same problem: raising the standard of living. To concluded, there are times when social-monetary policies should be implemented, but heavy borrowing can be devastating if not done properly. All states and societies deal with the same problems, and therefore are entwined to each other.